In the past seven weeks, more than 1.2 million Brazilians with monthly incomes between BRL 2,640 and BRL 20,000 have been able to renegotiate BRL 11.7 billion (USD 2.35 billion) in debts with banks under President Luiz Inácio Lula da Silva’s new debt-relief program.
According to banking association Febraban, more than 1.6 million contracts have been negotiated so far, allowing the clearance of some 6 million negative credit records.
A campaign promise of Lula’s, the government enacted the Desenrola program through a provisional decree in early June. It was later incorporated into a bill that would limit the growth of credit card debt to 100 percent of the original amount. It has just been approved by the House and still needs to pass the Senate.
A monthly survey of family debt by the National Confederation of Commerce (CNC) shows that three-quarters of Brazilian households are in debt. Meanwhile, 23 percent are in default, and nearly 10 percent are unable to pay at all. According to credit bureau Serasa, nearly 72 million consumers are blacklisted.
By helping low-income families get out of debt, the government hopes to stimulate the economy.
Family consumption is a key economic driver on the demand side, typically accounting for more than 60 percent of Brazil’s GDP. After growing just 0.2 percent in the first three months, household spending rebounded by 0.9 percent in the second quarter, driven by a resilient labor market and slight income growth.
To participate in the program, consumers must fall into two income brackets. Those in the second bracket, with monthly incomes between BRL 2,640 and BRL 20,000, were offered the program — the 1.2 million people who have benefited so far fall into this income bracket. That’s just shy of the 30 million that the government estimates could benefit from the first phase of Desenrola.
Lower-income clients with debts of up to BRL 5,000 will be able to enroll in the program starting in September. They will be able to repay in installments, with interest rates of up to 1.99 percent per month — in their case, government guarantees will back the renegotiation.
This second phase is considered more complex because it requires the government to centralize data on consumer debt and to hold debt auctions, providing guarantees for contracts in which creditors offer the largest discounts. Only at the end of this phase will it be possible to assess the real impact of the government program.
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